Thursday, May 24, 2012

Board Finds Auction Sale Insufficient to Raise a Prima Facie Case for Lowering Property's Assessed Value

The Knechts rely on their purchase of the subject property for $1,425,000 and on two appraisals valuing the property at $1,500,000 and $1,535,000, respectively. All three items, however, have a significant evidentiary problem—they address the property’s value as of dates more than one year after the relevant January 1, 2008 valuation date at issue in this appeal. In fact, Mr. Capozza’s appraisal values the property as of March 1, 2011—more than three years after the relevant valuation date.
Mr. Knecht did not really attempt to explain how those items related to the subject property’s market value-in-use as of January 1, 2008. ...

There is another problem with relying on the subject property’s auction price—it does not appear to meet the conditions of a market value sale. As explained in the Manual, market value is

The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing for title from seller to buyer under conditions whereby:

o The buyer and seller are typically motivated;
o Both parties are well informed and advised and act in what they consider their best interests;
o A reasonable time is allowed for exposure in the open market;
o Payment is made in terms of cash or in terms of financial arrangements comparable thereto;
o The price is unaffected by special financing or concessions.

MANUAL at 10.

The evidence in this case shows that two key indicia of a market value sale were missing—the seller was atypically motivated and the property was not exposed to the market for a reasonable time. The Knechts bought the property at auction in what all the witnesses described as a “short sale. Although the parties did not explain what they meant by that term, the Board assumes that they were describing a sale in which the sale price was less than the amount that the seller owed on the property. See In re Booth, 417 B.R. 820, 824 n.3 (Bankr. M.D. Fla, 2009) (quoting In re Fabbro, 411 B.R. 407, 413 n.7 (Bankr. D. Utah 2009) (defining a “short sale” as “a sale by a willing seller to a willing buyer for less than the total encumbrances of the home with the consent of the underlying lienholders who agree to take less than what they are owed.”). The seller was under financial duress and the property sold for significantly less than both the seller’s original asking price of $2,690,000 and his last asking price of $2,490,000. Pet’rs Ex. 3. Plus the property was twice offered at auction, each time after having been exposed to the market for significantly less than the average marketing time for lakefront properties on Lake Wawasee. Indeed, Mr. Knecht acknowledged that the property was auctioned partly because of “complications with the seller proposing a short sale.

That is not to say that an auction or short sale automatically fails to qualify as a reliable indicator of a property’s market value-in-use. The same is true regarding sales for significantly less than a property’s list price. The Board also recognizes that there may be situations where enough properties in an area are sold in forced sales or are otherwise sold under duress as to effectively constitute the market. But that is not the case here. Given the totality of the circumstances, the weight of the evidence shows that the seller in this case was under duress and the price that the Knechts paid for the subject property is not, by itself, probative of the property’s market value-in-use.

Because the Knechts offered no probative evidence relating to the subject property’s market value-in-use as of January 1, 2008, they failed to make a prima facie case for changing the property’s assessment.